Crude oil bulls are hoping that progress on U.S.-China trade talks could offset bearish supply numbers, notes senior market analyst at Price Futures Group Phil Flynn.
The crude oil market seems to be looking over its shoulder even as there are signs that oil supplies will probably rise due to refinery maintenance. Not only did we hear talk from private forecasters of a big supply increase in the Cushing Oklahoma delivery point, but also talk that bad weather in Texas could inflate supply. Now normally when faced with the possibility of rising supply and the impending refinery maintenance season the oil price would fall, sometimes hard. Yet crude oil prices are hanging in there. The reasons why are clear; U.S.-China trade talks progress, U.S. sanctions on Venezuela’s Maduro regime, Iran oil sanctions and the fact that the U.S. economy continues to defy market skeptics.
For the U.S.-China trade talks it seems that the March 1 deadline is not a magical date according to President Donald Trump. In other words, the President is giving China some wiggle room to come to an agreement before the U.S. makes a move. The Wall Street Journal quoted the President as saying, “The real question will be, will we raise the tariffs? I know that China would like not for that to happen. So, I think they are trying to move fast so that doesn’t happen. But we’ll see what happens.” He added, “I can’t tell you exactly about timing, but the date is not a magical date. A lot of things can happen.”
If a deal does happen, this will be very bullish for oil. Chinese oil demand that is still near record highs, despite an economic slowdown, would grow sharply if they see tariffs lifted.
The market also realizes that the ongoing sanctions on Venezuela will continue to draw on heavy crude oil supply that will be needed when refiners ramp up production. While we are seeing reports that Canada is trying to rent trucks and train cars to replace the heavy sour Venezuelan supply, the logistical limitations are going to make that hard to accomplish to the degree that may be needed. For refiners, the good news is that they will be in maintenance, which may give them time to build up some heavy supply but regardless, the longer Venezuelan crude is held in limbo, the more bullish it becomes for gasoline and diesel.
At the same time, we can’t forget the Iranian sanctions. Reuters reported that Iran’s exports of crude oil were higher than expected in January and are at least holding steady this month, according to tanker data and industry sources, as some customers have increased purchases due to waivers from U.S. sanctions. Shipments are averaging 1.25 million barrels per day (bpd) in February, Refinitiv Eikon data showed and a source at a company that tracks Iranian exports said. They were between 1.1 and 1.3 million bpd in January, higher than first thought. Yet Reuters points out that buyers probably bought extra oil from Iran before the waivers expired. If Trump wants to pressure Iran, they will have to start laying down the hammer on the buyers of Iranian crude.
The macro mood can move us today. Not only do we get the Fed minutes, we also get the weekly storage data from The American Petroleum Institute (API). For the Fed, the market will focus on any change in the wind down of the Fed balance sheet. They also want to see if the Fed is worried that they went from too hawkish to too dovish.
As far as the API, we expect to see a build in crude and gasoline and a draw in distillates. Of course, when it comes to these weekly reports, we must remember that the two major reports we get from the API and the Energy Information Administration (EIA) rarely jive, so be prepared for anything. The API may be looking to catch up with last week’s more bearish EIA report. Or maybe the EIA was too bearish, and the EIA report will be wildly bullish to catch up to the more bullish API.
